Wall Street stocks inch higher as Microsoft gains on earnings beat

US stocks inched higher amid mixed earnings on Wednesday as strong gains from Microsoft helped alleviate investor sentiment after a tech sell-off earlier in the week.

The S&P 500 added 0.2 per cent, veering towards posting its worst monthly performance since markets tumbled in March 2020. The technology-heavy Nasdaq Composite was little changed.

Microsoft, which has a market capitalisation of $2tn, topped analysts’ expectations for revenue and earnings in the latest quarter, with chief executive Satya Nadella predicting that tech spending would remain strong even if economic growth slowed.

Meanwhile, Google parent Alphabet reported a $1.5bn drop in quarterly profits following the closing bell on Tuesday, citing a slowdown in European advertising spending at its YouTube division, driven by Russia’s invasion of Ukraine.

Ahead of this earnings season some investors had hoped the dominance of Big Tech groups would secure their finances and relatively high valuations against the economic pressures of the war and the impact of surging inflation on household finances. Apple and Amazon have yet to report results.

“This sector was priced for perfection and set up to fail,” said Julian Howard, lead investment director for multi-asset solutions at fund manager GAM. “Anything that is short of a really good [earnings] beat is going to be severely punished by the market.”

But Microsoft’s performance had offered reassurance, said Antoine Lesne, head of research and strategy at State Street’s SPDR ETF business. “The earnings are not all that bad,” he said. “The next big question is have we passed peak inflation? We believe some stickiness will remain and central banks will have to tighten, hurting [high growth tech] more.”

In government debt markets, the yield on the US 10-year Treasury note rose 0.1 percentage points to 2.84 per cent, following a bout of safe-haven buying earlier in the week. The yield on the policy-sensitive two-year note rose 0.1 percentage points to 2.6 per cent.

The dollar index reached its highest point since 2017 after US Federal Reserve chair Jay Powell signalled that the central bank is poised for a string of rate rises to battle surging consumer prices. But strict social restrictions in China, stemming from the nation’s zero-Covid policy, have muddled investors’ inflation forecasts.

“Markets are trying to sort out the economic consequences of lockdowns in China,” said Gergely Majoros, investment committee member at Carmignac, citing the risk of snarled-up manufacturing supply chains exacerbating inflationary pressures from Russia’s invasion of Ukraine, which has boosted fuel and food prices.

But Chinese authorities, having permitted the nation’s tightly controlled currency to weaken, would also lower the cost of importing goods from the world’s workshop, which “could be deflationary”, said Majoros.

Europe’s regional Stoxx 600 share index closed up 0.7 per cent. Exporters were helped by a weaker euro, which hit a fresh five-year low against the dollar of $1.0515, on bets of aggressive interest rate rises in the US.